Question

The city of New Orleans has 200 advertising companies, 199 of which employ designers of normal ability at a salary of $100,000 a year. The firms that employ designers of normal ability each collect $500,000 in revenue a year, which is just enough to ensure that each earns exactly a normal profit. However, the 200th company employs Janus Jacobs, an unusually talented designer. Because of Jacobs's talent, this company collects $700,000 in revenue a year. a. How much will Jacobs earn? Instruction: Enter your response as an integer value. $ per year. What proportion of his annual salary will be economic rent? Instruction: Enter your response as a percentage rounded to the nearest whole number. %. b. Will the advertising company for which Jacobs works be able to earn an economic profit? Yes.

Answer 1

Answer:

The answers are:

A) $280,000 per year ; 71% of his salary is economic rent.

B) No

Explanation:

Since the company that hires Janus will collect $200,000 in extra revenue, Janus should earn $280,000 per year. This includes a normal salary for a designer and the extra revenue generated by Janus's work ($80,000 + $200,000). The extra $200,000 can be considered Janus's economic rent. This represents 71% of his salary.  

Janus's employer will not be able to earn an economic profit since it is her talent that generates the extra $200,000, so if she tried to lower her salary, competing firms could offer Janus a better salary up to the $280,000 level.